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Limited AFS licence, including for accountants: ASIC releases its guidance

Jun 2013

On 14 June 2013, ASIC released information sheet 179 to assist people applying for a limited Australian financial services (AFS)
licence. The limited AFS licence won't be limited to accountants. However, at this stage the guidance is most interesting for accountants wishing to
take advantage of transitional rules which operate from 1 July 2013 to 30 June 2016, mainly because the application process is less onerous.

The information sheet contains guidance about ASIC's licensing application process, and the required information which all applicants must lodge to
support their application. The guidance details how the regime will apply to those who hold a limited AFS licence.

Stephanie Bower and Julian Smith

Professional adviser related

Transitional arrangements: applicants who apply before 1 July 2016 and whose responsible managers are recognised accountants

Whilst any person can apply for the new limited AFS licence, recognised accountants[1] who apply between 1
July 2013 and 20 June 2016 can take advantage of the transitional arrangements.

Under the transitional arrangements, where an applicant's responsible managers are recognised accountants, lower evidentiary requirements apply in relation
to ASIC's assessment of the applicant's organisational competence: the 'organisational competence' concept is discussed below.

Specifically, an applicant would only need to satisfy the 'knowledge' requirements in respect of its responsible managers (for example, details of relevant
training and qualifications), and would not be required to demonstrate 'experience' (for example, with business references, which would ordinarily be
required).

However, applicants who are granted a limited AFS licence under the transitional arrangements will be subject to an additional licence condition that , if
requested by ASIC within 3 years of the grant of the licence, the licensee must provide further evidence that:

it has sufficient knowledge of the licensee's obligations under the Corporations Act 2001 and Corporations Regulations 2001; and

it has the competence to provide the financial services covered by the licence.

Why should accountants consider the limited AFS licence?

These developments are important for those accountants who currently rely on specific exemptions available under financial services laws from the need to
hold an AFS licence. The exemption which we expect is most commonly relied on by many accountants, allowing them to advise clients about acquiring or
disposing of an interest in a SMSF, will not be available after 1 July 2016.

If an accountant or accounting firm considers that advising on SMSFs:

is core business for them — or will likely be in the near future; or

is an important ancillary service, but one which is central to maintaining the business, trust and confidence of its clientele,

then those accountants or firms should seriously consider their strategy for meeting client needs beyond 1 July 2016.

What can the limited AFS licence authorise the licensee to do?

Limited AFS licences will cover the range of financial services that licensees provide for specific types of financial products. It will also specify the
types of clients licensees can provide those services to.

ASIC has summarised the possible authorisations for a limited AFS licence as follows:

Services

Products

Clients

Provide financial product advice

interest in an SMSF

superannuation products in relation to a client's existing holding, to the extent required for:

making a recommendation to establish an SMSF; or

advising a client on contributions or pensions under a superannuation product

retail

wholesale

Provide financial product advice that is 'class of product' advice

superannuation products

securities

general insurance products

life risk insurance products

basic deposit products

simple managed investment schemes

retail

wholesale

Arrange for a person to deal in a financial product, including applying for, acquiring, varying issuing or disposing or financial products
on behalf of another

interest in an SMSF

retail

wholesale

Applying for a limited AFS licence

All applicants will be required to submit an application form, and accompanying 'core proofs' which explain how the applicant satisfies particular aspects
of the licensing requirements.

We have summarised below, in general terms, what is required of accountant applicants:

Describe their business: describe their business, and summarise the financial services and products for which they are seeking
authorisation;

Join a dispute resolution service, provide insurance information: if the applicant will be providing services to retail clients, provide
information about arrangements for internal and external dispute resolution, compensation and insurance;

Demonstrate 'organisational competence' of their people: ASIC will assess organisational competence by looking at the knowledge (that
is, training and relevant qualifications) of an applicant's 'responsible managers' — these are the people who will be directly responsible for the day to
day significant decisions of the financial services business. Applicants will need to provide, in respect of each responsible manager:

copies of relevant qualifications; and

professional accreditation certificates;

Demonstrate good fame and character of their people: provide, in respect of each responsible manager:

a national criminal history check (which must not be more than 12 months old); and

a bankruptcy check (which must not be more than 12 months old);

Demonstrate sufficient resources: provide financial statements and other documents to demonstrate that the applicant has sufficient
financial, human and technological resources available to provide the financial services it will be licensed to provide, and processes for ensuring ongoing
compliance with its financial requirements.

What are the ongoing obligations for limited AFS licensees?

Annual compliance certificate

Limited AFS licensees will be required to lodge an annual compliance certificate. At the date of publishing of this article, ASIC has not yet released the
form of, or required content for, the relevant compliance certificate.

The compliance certificate is in lieu of the requirement that applies to non-limited AFS licensees to lodge annual auditor's reports.

Compliance with financial services laws

Limited AFS licensees must comply with the conduct and disclosure obligations that apply to providers of financial product advice.

For example, licensees will be required to comply with the best interests duty and related obligations, and to provide clients with a Statement of Advice,
where required.

Licensees will also be required to comply with the general licensing obligations under the Corporations Act 2001. What a licensee will be required
to do to meet its obligations under the Corporations Act 2001 will depend on factors such as the nature of its business, the services it provides
to its clients and the products it is advising on. You should seek advice on this if you are in doubt as to your obligations under the legislation.

Compliance with conditions of licence

Licensees must comply with any special conditions set out in its licence certificate. In addition, licensees will be subject to the conditions contained in
regulation 7.6.04 of the Corporations Regulations 2001, which are imposed on all AFS licensees.

[1]
A 'recognised accountant' is a person who: holds a Certificate of Public Practice issued by the Institute of Chartered Accountants; or holds a
Public Practice Certificate issued by CPA Australia Ltd or the Institute of Public Accountants.

Lawyer in Profile

Kate Latta
Lawyer : 61 3 9258 3012

Kate is a lawyer in Maddocks General Commercial Team. Kate joined the firm in 2010 as a paralegal and was admitted to practice in December 2012.

Kate has been involved in acting for a range of commercial, government and professional industry clients.

Her areas of expertise include:

drafting and reviewing commercial contracts;

corporate law;

corporate governance;

mergers and acquisitions; and

trusts law;

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